WEBVTT - Goldman Sachs Chief Economist Jan Hatzius Talks Tariff Hikes

0:00:02.520 --> 0:00:08.880
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. The Golden SAX Annual

0:00:08.880 --> 0:00:12.200
<v Speaker 1>Global micro Conference for Asia Pacific getting underway in Hong

0:00:12.280 --> 0:00:15.600
<v Speaker 1>Kong right now with more than two thousand investors, policymakers

0:00:15.680 --> 0:00:19.560
<v Speaker 1>and amlest gathering to really go over the economic outlook

0:00:19.640 --> 0:00:21.920
<v Speaker 1>for the year ahead. We're trying to correspond the mime

0:00:21.960 --> 0:00:24.520
<v Speaker 1>and Low is there with our next guest meme.

0:00:27.120 --> 0:00:30.600
<v Speaker 2>Thanks Heidi. Certainly what those Trump terry scheme for the

0:00:30.640 --> 0:00:33.560
<v Speaker 2>global economy is an important theme here at the Global

0:00:33.600 --> 0:00:35.920
<v Speaker 2>micro Conference. And the perfect guest to join us here

0:00:36.120 --> 0:00:39.479
<v Speaker 2>discussing this is Jan Hatzias, a chieved global economists at

0:00:39.479 --> 0:00:42.200
<v Speaker 2>Goldman Sex. So Jan, really great to have you here,

0:00:42.600 --> 0:00:44.320
<v Speaker 2>and I want to start with what's happening in the

0:00:44.400 --> 0:00:47.360
<v Speaker 2>US because obviously we're waiting for the inflation data. We

0:00:47.520 --> 0:00:50.919
<v Speaker 2>had a very strong jobs report on Friday, and we've

0:00:51.000 --> 0:00:54.760
<v Speaker 2>seen you spiking investors really stop pricing in anything more

0:00:54.760 --> 0:00:57.080
<v Speaker 2>than a full rate card. But your house view, though,

0:00:57.160 --> 0:00:59.320
<v Speaker 2>is still that the Fed will cut twice this year.

0:00:59.480 --> 0:01:04.960
<v Speaker 3>Why is there Basically because we think that inflation is

0:01:05.040 --> 0:01:08.960
<v Speaker 3>still on a normalizing path and right now we're at

0:01:08.959 --> 0:01:13.000
<v Speaker 3>two point eight percent for the core PCE measure that

0:01:13.040 --> 0:01:16.560
<v Speaker 3>the FED watches particularly closely. We think that's going to

0:01:16.600 --> 0:01:19.440
<v Speaker 3>go down to about two point four percent by the

0:01:19.520 --> 0:01:22.120
<v Speaker 3>end of the year. And even of that two point

0:01:22.160 --> 0:01:26.720
<v Speaker 3>four percent, about thirty basis points in our forecast comes

0:01:26.760 --> 0:01:30.679
<v Speaker 3>from tariffs. Tariffs are more of a one off effect,

0:01:30.760 --> 0:01:34.000
<v Speaker 3>it's a price level effect, so you might want to

0:01:34.440 --> 0:01:38.000
<v Speaker 3>sort of downweigh that thirty basis points. And the underlying

0:01:38.040 --> 0:01:41.639
<v Speaker 3>inflation rate in our forecast is two point one percent,

0:01:41.680 --> 0:01:43.760
<v Speaker 3>which is very close to the Fed's target. So in

0:01:43.800 --> 0:01:47.039
<v Speaker 3>that kind of environment, I still think you're likely to

0:01:47.080 --> 0:01:50.160
<v Speaker 3>get a couple of cuts, but clearly the FMC is

0:01:50.160 --> 0:01:53.400
<v Speaker 3>in no hurry, and therefore we think it's probably going

0:01:53.480 --> 0:01:56.800
<v Speaker 3>to take until later in Q two, maybe the June meeting,

0:01:57.000 --> 0:01:58.640
<v Speaker 3>for the first cut to be delivered.

0:01:59.040 --> 0:02:02.200
<v Speaker 2>As you said, inflation is actually still quite well, quite

0:02:02.200 --> 0:02:05.160
<v Speaker 2>well above that two percent target. Do you see any

0:02:05.320 --> 0:02:10.080
<v Speaker 2>risk of no cut at all? And underw scenario, I.

0:02:09.960 --> 0:02:12.960
<v Speaker 3>Think you can. Look, there's always a range of scenarios,

0:02:12.960 --> 0:02:16.600
<v Speaker 3>so it's hard to really rule anything out, especially when

0:02:16.600 --> 0:02:19.360
<v Speaker 3>it comes to monetary policy. Monetary policy has to be

0:02:19.800 --> 0:02:24.359
<v Speaker 3>very data dependent and respond to new information. So if

0:02:24.400 --> 0:02:28.000
<v Speaker 3>we were to see very sticky inflation closer to three

0:02:28.040 --> 0:02:31.720
<v Speaker 3>percent throughout the year. Yes, I think in that case

0:02:31.800 --> 0:02:35.760
<v Speaker 3>they might not not cut. That's a possibility. But again,

0:02:36.240 --> 0:02:39.680
<v Speaker 3>if I look at the adjustment that's occurring in the economy,

0:02:40.160 --> 0:02:47.200
<v Speaker 3>the trends in the most least noisy components of inflation.

0:02:47.720 --> 0:02:50.040
<v Speaker 3>If I look at the labor market rebalancing that we're

0:02:50.080 --> 0:02:53.600
<v Speaker 3>seeing even after the strong jobs report, in the slowdown

0:02:53.639 --> 0:02:56.520
<v Speaker 3>in wage growth, to me, that suggests there's still some

0:02:56.680 --> 0:03:01.679
<v Speaker 3>room for monetary policy toized. After all, the funds rates

0:03:01.720 --> 0:03:04.120
<v Speaker 3>still quite high at four and a quarter to four

0:03:04.160 --> 0:03:04.880
<v Speaker 3>and a half percent.

0:03:05.360 --> 0:03:07.560
<v Speaker 2>Okay, so you see the set cutting as a way

0:03:07.600 --> 0:03:11.120
<v Speaker 2>to normalize rates. But meantime, we actually have the news

0:03:11.160 --> 0:03:14.840
<v Speaker 2>today that Trump's economic team is looking at possibly a

0:03:14.919 --> 0:03:18.080
<v Speaker 2>gradual way of a gradual approach to those tariffs, hiking

0:03:18.080 --> 0:03:20.799
<v Speaker 2>maybe two to five percent per month. And to me,

0:03:20.919 --> 0:03:22.880
<v Speaker 2>this sounds like is just going to be a giant

0:03:22.880 --> 0:03:25.200
<v Speaker 2>headache for businesses. So what is your take on this

0:03:25.360 --> 0:03:28.120
<v Speaker 2>and how it's going to shape global trade in businesses?

0:03:28.600 --> 0:03:30.520
<v Speaker 3>First of all, I'd say there have been a lot

0:03:30.560 --> 0:03:33.240
<v Speaker 3>of different reports about tariffs. I mean, I think we

0:03:33.320 --> 0:03:37.520
<v Speaker 3>can have pretty high confidence that tariffs are coming in

0:03:37.520 --> 0:03:41.040
<v Speaker 3>some form. What form exactly they take, I think is

0:03:41.040 --> 0:03:45.440
<v Speaker 3>still a little bit open to debate. There is a

0:03:45.440 --> 0:03:48.760
<v Speaker 3>there are different approaches to rolling out tariffs. You could

0:03:48.760 --> 0:03:53.680
<v Speaker 3>do a ten percent tariff immediately, or you know, maybe

0:03:53.680 --> 0:03:58.680
<v Speaker 3>a twenty percent tariff on China. That's our baseline assumption,

0:03:58.800 --> 0:04:02.080
<v Speaker 3>but you could also roll this out more gradually.

0:04:02.800 --> 0:04:02.960
<v Speaker 2>You know.

0:04:03.000 --> 0:04:06.360
<v Speaker 3>I think which one is more damaging or less damaging

0:04:07.120 --> 0:04:10.560
<v Speaker 3>is a little bit of a judgment call, because if

0:04:10.600 --> 0:04:14.040
<v Speaker 3>you go more gradually, then obviously each increment is pretty small,

0:04:14.320 --> 0:04:17.520
<v Speaker 3>it's kind of predictable what happens next, but it also

0:04:17.600 --> 0:04:20.279
<v Speaker 3>lasts for a longer period of time and you don't

0:04:20.279 --> 0:04:24.880
<v Speaker 3>get it over with in some sense as quickly. So

0:04:25.480 --> 0:04:28.400
<v Speaker 3>I think those are ultimately probably a little bit more details.

0:04:28.960 --> 0:04:32.839
<v Speaker 3>The important point is that, yes, I think tariffs on

0:04:33.080 --> 0:04:38.960
<v Speaker 3>China and probably on auto imports from Europe are probably coming.

0:04:39.080 --> 0:04:41.280
<v Speaker 3>That is part of our baseline, and that is going

0:04:41.320 --> 0:04:44.839
<v Speaker 3>to have an impact on inflation and on growth, not

0:04:44.920 --> 0:04:48.960
<v Speaker 3>a huge impact. These these kinds of tariffs that we

0:04:49.040 --> 0:04:54.760
<v Speaker 3>have in our baseline, they don't negate that we still

0:04:54.800 --> 0:04:58.440
<v Speaker 3>have a pretty constructive inflation outlook and an above consensus

0:04:58.440 --> 0:05:01.240
<v Speaker 3>growth outlook. We're two and a half GDP growth for

0:05:01.480 --> 0:05:05.200
<v Speaker 3>two thousand and twenty five, which is still about half

0:05:05.200 --> 0:05:07.200
<v Speaker 3>a percentage point above the consensus.

0:05:07.560 --> 0:05:10.600
<v Speaker 2>Okay, and I want to talk about China here, because

0:05:11.040 --> 0:05:13.000
<v Speaker 2>your house view is that we could see the CSI

0:05:13.080 --> 0:05:15.320
<v Speaker 2>three hundred gains some twenty percent by the end of

0:05:15.360 --> 0:05:17.440
<v Speaker 2>the year, which I think is one of the most

0:05:17.520 --> 0:05:20.200
<v Speaker 2>optimistic ones out there at a time when investors are

0:05:20.200 --> 0:05:22.320
<v Speaker 2>pulling out of China, and in fact, you're thinking that

0:05:22.360 --> 0:05:25.040
<v Speaker 2>the CSI three hundred will outperform the SMP because your

0:05:25.040 --> 0:05:27.880
<v Speaker 2>outlook there is an eleven percent gain by the end

0:05:27.920 --> 0:05:31.120
<v Speaker 2>of the year. What is underpinning this very strong outlook

0:05:31.160 --> 0:05:32.120
<v Speaker 2>on Chinese equities?

0:05:33.000 --> 0:05:37.839
<v Speaker 3>It's really more a view on valuation and the fact

0:05:37.920 --> 0:05:40.679
<v Speaker 3>that quite a lot of bad news is already priced

0:05:40.720 --> 0:05:44.440
<v Speaker 3>in China, whereas a lot of good news is priced

0:05:44.480 --> 0:05:48.680
<v Speaker 3>in the US. From an economic perspective, we're above consensus

0:05:48.760 --> 0:05:52.320
<v Speaker 3>for the US is are just noted, and we're more

0:05:52.360 --> 0:05:56.040
<v Speaker 3>in line with consensus on China four and a half

0:05:56.080 --> 0:05:58.720
<v Speaker 3>percent growth. We do think there's going to be an

0:05:58.720 --> 0:06:02.760
<v Speaker 3>impact from the tariffs that we just discussed, although I

0:06:02.800 --> 0:06:06.000
<v Speaker 3>think a significant part of that is going to be

0:06:06.640 --> 0:06:11.680
<v Speaker 3>undone or cushioned by policy stimulus. But from an economic perspective,

0:06:12.120 --> 0:06:16.640
<v Speaker 3>you know, our forecast is deceleration from four point nine

0:06:16.640 --> 0:06:19.719
<v Speaker 3>percent last year to four point five percent now. But

0:06:20.000 --> 0:06:24.120
<v Speaker 3>that's not the only driver of equity market and financial

0:06:24.120 --> 0:06:28.440
<v Speaker 3>market performance, because the initial conditions and what investors already

0:06:28.480 --> 0:06:30.200
<v Speaker 3>discounting also plays a role.

0:06:30.960 --> 0:06:36.280
<v Speaker 2>Right. What is your expectations of the sort of stimulus

0:06:36.279 --> 0:06:37.320
<v Speaker 2>we could see from China.

0:06:38.080 --> 0:06:41.919
<v Speaker 3>We think it's going to be a broad range of measures,

0:06:42.400 --> 0:06:48.280
<v Speaker 3>you know, rolling out additional monetary easing, fiscal easing, and

0:06:48.400 --> 0:06:51.760
<v Speaker 3>support for the housing market. I'd also note that if

0:06:51.760 --> 0:06:54.680
<v Speaker 3>you look at the housing markets, obviously a very big

0:06:54.720 --> 0:06:57.480
<v Speaker 3>downturn that we've been seeing unfold over the last few

0:06:57.560 --> 0:07:02.279
<v Speaker 3>years that is still ongoing, but in certain regions at

0:07:02.400 --> 0:07:07.320
<v Speaker 3>least we are seeing some more positive developments on home sales.

0:07:07.839 --> 0:07:10.760
<v Speaker 3>I think housing will continue to be a headwind in

0:07:10.800 --> 0:07:13.720
<v Speaker 3>a bigger picture sense over the next several years, but

0:07:13.800 --> 0:07:17.400
<v Speaker 3>at the margin, in the higher frequency data, we are

0:07:17.440 --> 0:07:20.840
<v Speaker 3>getting a little bit of support, suggesting that the policy

0:07:20.880 --> 0:07:22.120
<v Speaker 3>easing is having some effect.

0:07:22.320 --> 0:07:24.800
<v Speaker 2>Okay, I want to touch on India because India had

0:07:24.840 --> 0:07:28.040
<v Speaker 2>been that bright spot last year and gaining importance as

0:07:28.320 --> 0:07:31.200
<v Speaker 2>concerns mount around China, but we do see India sort

0:07:31.200 --> 0:07:34.600
<v Speaker 2>of prrying back expectations of growth. We've seen a market

0:07:34.640 --> 0:07:38.400
<v Speaker 2>seller recently, the currency plunging. Are you still optimistic on

0:07:38.400 --> 0:07:39.200
<v Speaker 2>the India story?

0:07:39.560 --> 0:07:42.200
<v Speaker 3>Well, I think what we've seen in India has been

0:07:42.920 --> 0:07:47.239
<v Speaker 3>above trend growth and growth really at an unsustainable pace.

0:07:47.360 --> 0:07:51.000
<v Speaker 3>We think that the potential growth rate of the Indian

0:07:51.040 --> 0:07:53.840
<v Speaker 3>economy is closer to six percent, and we've been running

0:07:54.160 --> 0:07:59.800
<v Speaker 3>well above that. So that transition from a and above

0:07:59.840 --> 0:08:02.720
<v Speaker 3>t rend pace to more of a trend pace that

0:08:02.880 --> 0:08:06.360
<v Speaker 3>was always going to occur. And of course these transitions

0:08:06.400 --> 0:08:10.800
<v Speaker 3>can be you know, a little bit disruptive and investors,

0:08:11.240 --> 0:08:16.040
<v Speaker 3>you know, maybe disappointed as growth slows down. But in

0:08:16.040 --> 0:08:20.400
<v Speaker 3>my view, it's really an inevitable deceleration which we'll go

0:08:20.520 --> 0:08:23.400
<v Speaker 3>through now. But if I look at the longer term outlook,

0:08:23.600 --> 0:08:26.840
<v Speaker 3>you know, something in the six plus range, I think

0:08:26.880 --> 0:08:30.960
<v Speaker 3>it's very realistic for India for many years. And that's

0:08:31.080 --> 0:08:33.920
<v Speaker 3>a very rapid potential growth rate, even if it's not

0:08:34.040 --> 0:08:37.679
<v Speaker 3>quite as rapid as the numbers we've been printing in

0:08:37.760 --> 0:08:39.280
<v Speaker 3>the in the recent past.

0:08:39.520 --> 0:08:41.680
<v Speaker 2>All Right, thank you so much. Jan. That was Jan,

0:08:42.440 --> 0:08:44.559
<v Speaker 2>chief Global Economists at Goldman s